Nike too expensive? Analyst says buy this athletic stock instead

As yoga pants and sneakers replace jeans and ballet flats as women's go-to weekend uniform, athletic apparel and footwear firms are riding a wave of robust growth.

One company at the forefront of this boon is the world's most valuable sports brand, Nike, which has seen its shares jump 20 percent over the past year.

Pedestrians walk past a Foot Locker store in New York.
Michael Nagle | Bloomberg | Getty Images
Pedestrians walk past a Foot Locker store in New York.

So how can investors, who are looking to cash in on the robust athleisure movement, capitalize on the brand's strength at a substantially lower cost? According to one analyst, they should consider buying Foot Locker instead.

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"Nike is trading at 24 times our full year 2016 earnings per share estimate," Sterne Agee analyst Sam Poser wrote in a note to investors on Monday. "Foot Locker is the better way to capture Nike's strength, as [it] has the ability to curate the best of all athletic brands."

Those brands include burgeoning names such as Under Armour, which saw its sales gain 32 percent to $3.08 billion last year.

Despite its exposure to other labels, Foot Locker's performance has a strong correlation to Nike's results. As its largest vendor, the brand accounts for nearly 70 percent of Foot Locker's total purchases, according to Jefferies estimates. Selling at about $61, its shares are also a bargain compared to the $96 per share price of Nike stock.

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What's more, Foot Locker shares have a substantially better valuation, trading at 14 times Poser's 2016 earnings per share estimates.

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Sterne Agee's note on Nike came hours before Foot Locker held a meeting with investors, at which it outlined its financial goals for 2020. Its most aggressive target is to boost annual revenue from last year's $7.2 billion to $10 billion, implying it will need to post comparable sales growth of about 5 percent for the next five years.

Analysts said the goal is achievable, and likely to be surpassed.

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Foot Locker's road map to reach these goals includes improving its sluggish apparel assortment—which trailed its robust footwear sales in the fourth quarter, with comparable sales down in the low single digits—and expanding its women's business.

The company is looking to fine-tune its female-skewed assortment by shifting away from its struggling Lady Foot Locker nameplate toward its new SIX:02 concept.

Craig Warga | Bloomberg | Getty Images

This year, the retailer plans to add 20 of those stores to its current 15-store footprint, with a more robust rollout planned for the following year. The locations are larger and more modern than Lady Foot Locker stores.

"We view SIX:02 as the more formidable evolution of Lady Foot Locker, and believe as the concept gains scale it may have the ability to disrupt the women's mono-branded specialty athletic channel via its unique assortment of key branded apparel," Jefferies analysts Edward Plank and Randal Konik wrote in a note to investors.

It's only the latest evolution for the Foot Locker brand, whose lineage dates back to the now defunct "five-and-dime" store Woolworth's.

In the most recent quarter, Foot Locker reported earnings per share of $1 on a same-store sales gain of 10.2 percent. Nike will release its fiscal third-quarter results on Thursday.